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European capital enhancement exercise

European capital enhancement exercise

In light of the increase in systemic risk triggered by the sovereign debt crisis in the euro area, the European Council decided on 26 October 2011 that banking groups subject to the European Banking Authority’s (EBA) stress-test exercise are required to strengthen their capital positions in order to reach a Core Tier 1 capital ratio of 9% by 30 June 2012, following a prudent assessment of their sovereign debt exposures at market prices as at 30 September 2011.

This decision aimed to build up a temporary capital buffer and consequently to strengthen the soundness of institutions.